Posted 28th July 2022

Gold ETFs vs Digital Gold

digital gold vs gold etfs

When hearing about the potential returns from Gold ETFs, it can be an easy bandwagon to jump on. The promises of market exposure and returns without the necessity for ownership can seem appealing – at a first glance. 

real gold digital gold coin

What is digital gold (gold-backed crypto)?

Alongside the advent of blockchain, digital gold has risen in popularity in recent years, reducing the barriers to entry for individuals seeking access to gold investment. And, although a relatively new innovation, digital gold is making waves by securing individuals with an alternative form of payment to fiat currencies. 

value utility independent audits

Why choose digital gold?

Store of Value

The value of gold-backed crypto is derived from the fact that every single coin or token is pegged to a physical, tangible asset. 

Safe Haven 

Investors in the metal benefit from the fact that gold has maintained its purchasing power throughout time, due to the fact that it cannot be printed – rather, only minted. 

Utility as Money

Another aspect of gold-backed crypto to consider is the sheer fact that it is transforming the metals industry, reshaping its utility beyond an investment vehicle, into a global, borderless currency.

With the addition of a card, users are able to spend their bullion at the exact point of sale, in seconds. The aid of the blockchain offers the potential for individuals to integrate gold as a standard part of their daily payments – just like any other currency. 


As a finer point, it is a given that digital gold is readily associated with the transparency and immutability of the blockchain, to account for all coins or tokens in circulation. But while the blockchain itself does provide a safeguard in that matter, auditing for the physical metals is also essential to consider.

What are gold ETFs?

Gold Exchange-traded Funds are known under the broader umbrella term of Commodity ETFs, which are used for investment into raw goods, such as precious metals or crude oil. 

Investors typically select ETFs as a way to diversify their portfolios, with these funds offering exposure to a pool of bonds, stocks, or other assets, without the need to acquire each of them separately. When an investor buys stocks, they invest entirely in one company, whereas ETF investment gives the option for investors or traders to buy a single or multiple shares within an ETF. 

Some of the most popular gold ETFs hold physical gold to back their shares, with the share price tracking the price of gold. Due to the ease at which they can be traded, ETFs are often the cause of volatility in the gold market, with those holding gold ETFs often the first to be impacted by market movements – for better, or worse.

ETF investments are handled passively since returns are gathered from the tracked valuation of pooled assets rather than usage within a system. In light of this, investors have little control over their potential returns, than if they were garnered through spending or trading the asset itself, for example. 

Gold ETFs – the pitfalls

For new starters in the field of gold ETFs, this avenue can at first appear as a cost-effective way to access gold and a substitute for owning the physical asset. However, there are also some significant risks to consider associated with this avenue. 

Real Exposure?

While many argue that gold ETFs offer exposure to physical gold, investment in one does not guarantee legal title ownership of the asset itself. 

This begs the question of whether ETFs can truly provide exposure to the physical gold market if the investor cannot take ownership of the underlying asset. One of the leading providers in the Gold ETF market specifies that investors must own a minimum of 100,000 shares before they can submit a request to redeem gold, and even then, the provider can settle in cash. 

Counterparty Risk

Another aspect to point out is the importance of physical allocation when considering buying gold. 

Since Gold ETFs are traded on the commodities market, they are subject to counterparty risk. It is often the case that the value of ETF shares issued is greater than the value of the gold owned by the fund, which becomes a problem in the event of insolvency of the custodian or sub-custodian. 

This is the risk that holders of ETF shares must be willing to take and is an increasing possibility in times of unforeseen market circumstances or poor market decisions. Even concerning leading funds in the precious metals space, the issue of unallocated gold can leave investors vulnerable to an ETF provider’s unfulfilled obligations and their consequences.

Digital gold vs gold ETFs

The challenge of weighing up the optimal asset for both long-term investors and active traders often leads those contemplating gold to navigate towards the outwardly simple and easy access world of ETFs. 

However, it is only later down the line that these same investors can be met with a whole host of maintenance fees, counterparty risk and lack of control over ETF investment. It is worth considering that digital gold combines all the properties of physical gold – ownership, asset control, proven value, and portfolio diversification – attracting investors to this option in the first place. 

In the form of digital gold, access to gold investment is much simpler and more efficient for anyone seeking to benefit from the metal, with Kinesis now providing that opportunity through a bespoke platform and easy-to-use interface. 

Find out how Kinesis is transforming gold investment

This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.